By Matt Rosoff [bio]
Posted: Sep. 15, 2008

• Illustration: A Windows Retail Environment

The following is the full text of an article published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. More samples of our content, as well as a list of upcoming articles and reports are also available.

In an effort to stop Apple's gains in the PC market, Microsoft is launching a multiyear campaign centered on improving perceptions of the Windows brand. Fundamental shifts in Microsoft's approach to the PC market include reference designs and test suites, promotion of tested PCs, and Microsoft employees in retail stores. OEMs will likely welcome the Windows campaign as a long-overdue response to Apple's growth, and OEMs and retailers could benefit from more sales. However, the campaign could be hampered by conflicts between Microsoft and its partners, antitrust concerns, and fundamental problems with some Windows-branded products.

Apple Gaining Market Share

In the second quarter of 2008, Apple—which installs its own OS on computers built to its specifications and with its brand—became the third-largest PC manufacturer in the United States, with about 8% market share, according to Gartner and IDC. It's also the fastest-growing PC manufacturer by far, with U.S. year-to-year unit growth of more than 30%, compared with about 12% for Dell and less than 10% for all others, with many OEMs showing declines; overall unit growth for PCs in the United States was only 4%.

Although Apple is still not among the top five PC manufacturers globally, its summer 2008 expansion of the iPhone 3G to more than 60 countries worldwide could introduce many more people to the Apple brand, just as the popularity of the iPod portable music player in the United States seems to have drawn many consumers to consider a Mac instead of a Windows-based PC.

Apple's Marketing Successes

Product quality is definitely a factor in Apple's rise. The iPod and iPhone have been widely praised for their ease of use and have become extremely popular among consumers. The iPod has more than 70% market share for portable music players and the iPhone surpassed sales of all Windows Mobile phones in the United States after only two quarters on the market. In addition, many reviewers have lauded Apple's OS X while criticizing Vista for early problems with hardware and software compatibility and ease of use.

In addition, Apple has had two marketing successes that have probably contributed to its recent growth. First, a popular advertising campaign featuring characters representing a Mac and PC has run for almost two years with no response from Microsoft, allowing Apple to portray Vista PCs as complicated and frequently broken.

Second, Apple's retail presence has helped introduce consumers to the company's products. The company has built more than 200 dedicated retail stores worldwide as of July 2008, and a 2006 deal with Best Buy expanded its presence to more than 500 Best Buy stores. In the quarter ending June 30, 2008, 19% of Apple's Mac computer sales and 19% of its total revenue came through retail outlets.

The Apple Stores offer a particularly strong contrast with Microsoft's retail presence, offering hands-on access to working Apple products, demonstrations and classes, and on-site customer support. Microsoft's retail presence is more haphazard: store employees often have less training, PCs and peripherals are often turned off and displayed in locked cases or on high shelves, and Microsoft's branding may be completely absent.

Microsoft's Response

In response to Apple's successes, Microsoft has launched a multipart campaign focused on improving customer perceptions of the Windows brand. The campaign is not about a particular Windows OS, such as Vista, but is meant to promote the benefits of Windows-based PCs in general, as well as related products and services with the Windows brand, including Windows Mobile smart phones and Windows Live services. Unusually, this campaign is not tied to a particular Microsoft fiscal year, but will run at least from Sept. 2008 through the early 2010 release of the next version of the Windows desktop OS, and probably beyond that.

Hardware Consistency

Many aspects of the campaign, such as retail merchandising and advertising, fall into the traditional realm of marketing, but the campaign will also attempt to raise the quality bar for Windows PCs by promoting PCs that have been tested to meet standards for reliability and ease-of-use.

Under a program known as Velocity, Microsoft has provided several reference platforms and testing kits that OEMs can use to build PCs that meet certain standards for reliability, security, and ease-of-use—three areas where Apple's Macintosh computers frequently garner praise from reviewers. In turn, Microsoft will promote PCs that meet these standards. While Microsoft has often offered marketing incentives to OEMs who agree to participate in certain initiatives, in this case Microsoft will promote their PCs directly, featuring them in the Windows advertising campaign and on a revamped Windows.com site (which will be the online focal point of the advertising campaign), and ensuring they're displayed prominently in retail Windows environments. This gives OEMs a strong incentive to participate in the Velocity program, and 13 OEMs are on board so far, including Acer, Dell, Hewlett-Packard, Lenovo, Sony, and Toshiba.

Microsoft has not publicly disclosed the precise specifications that such PCs must meet to qualify for the program. However, two goals include speeding boot time and the time it takes to resume from a sleep state. In a post on the Windows Engineering blog, Microsoft claims that it was able to reduce boot time on a particular off-the-shelf Vista system from 45 seconds to 21 seconds simply by optimizing certain drivers and the BIOS; the same PC resumes from sleep in 2 seconds. Presumably, the materials for OEMs will show them how they can do the same. Whether faster boot times will steer consumers away from the Mac, however, remains to be seen.

Other likely areas of concentration include the following:

• Ensuring that all installed hardware drivers are the latest versions and are tested to work well together
• Matching the appropriate edition of the Windows OS with the hardware that's necessary to run it—for example, making sure that Windows Home Premium and Ultimate are installed only on computers with the necessary memory and graphics hardware to run the Aero Glass interface efficiently
• Enhancing security by preinstalling antimalware programs and ensuring that built-in Windows security features, such as Automatic Updates, are turned on and properly configured

Eventually, Microsoft could bundle or prominently feature its Windows Live services and related software clients as part of this campaign. In an advertising campaign over the 2007 holiday season, Microsoft promoted Windows Vista and Windows Live together, reasoning that the Windows online experience gives it an advantage over Apple. In particular, Apple's Safari browser isn't as broadly supported on Web sites as Microsoft's Internet Explorer, and users must subscribe to Apple's MobileMe (formerly .Mac) service for US$99 per year to get a smooth and fully integrated online experience with the Mac's bundled iLife suite. MobileMe also suffered some heavily publicized outages and slowdowns after the July 2008 introduction of the iPhone 3G.

Retail Experience

Microsoft will strike partnerships with retailers to create dedicated areas where customers can get hands-on experience with Windows PCs and related peripherals.

A tour of Microsoft's Retail Experience Center prototype reveals proposed "store-within-a-store" designs for outlets of different sizes and types. (For a photo of an ideal retail environment from the Experience Center, see "A Windows Retail Environment".) These Windows areas will feature attractive and approachable display areas (e.g., products lit well and displayed on a shelf at waist level rather than overhead), consistent color schemes for branding, clear product labeling, and (in larger stores) areas to conduct demonstrations.

These retail Windows centers will also feature full-time Microsoft employees known as Microsoft Gurus. These Gurus are intended to augment rather than replace in-store salespeople and support employees, and they will show users how to accomplish particular tasks with a PC (such as transferring photos from a digital camera and then uploading them to the Web), recommend PCs and peripherals based on consumers' stated needs, and be available to answer questions (although complicated support issues will still be referred to Microsoft's online or phone support). The Gurus' compensation will be tied to their scores on customer satisfaction surveys rather than product sales. The Guru program started as a pilot program with approximately 25 staffers in various U.S. and European retailers and will encompass 155 Gurus by the end of 2008.

Initial partners for this retail program are Circuit City and Best Buy in the United States, PC World in the United Kingdom, and MediaMarkt in France and Germany.

Advertising Campaign

Microsoft has hired advertising agency Crispin Porter + Bogusky to oversee a multiyear, multimedia campaign for Windows. The agency is known for its slightly surreal campaigns, such as Burger King TV commercials featuring an actor in a plastic Burger King head. The first TV spots in the Windows campaign fit this mold, with Microsoft cofounder Bill Gates and comedian Jerry Seinfeld meeting in a shoe store and rooming with a suburban family. According to Brad Brooks, Microsoft's vice president of consumer marketing for Windows, these initial advertisements were meant to attract attention back to Microsoft after several years of Apple's "I'm a Mac" commercials. Subsequent ads in the campaign have taken on Apple's commercials directly, featuring diverse customers in exotic locations declaring "I'm a PC" and challenging the stodgy, nerdish stereotype who plays the PC in Apple's ads.

The advertising campaign will also have a significant online component, guiding users to a Windows.com site featuring PCs that meet Microsoft's specifications for ease of use, as well as articles and videos showing consumers of all levels of technical sophistication how to accomplish certain tasks using Windows.

Ideal vs. Reality

The Windows campaign could encounter some stumbling blocks, such as the following:

Partner conflicts. The goals of Microsoft, OEMs, and retail partners may not correspond perfectly, leading to real-world scenarios that fall short of Microsoft's vision. The Windows retail centers will feature PCs chosen by Microsoft, but will invariably include other systems that retailers find more profitable or need to clear from inventory, and Microsoft's branding might be complicated if retailers and OEMs insist on having their own brands equally present. Although Microsoft might hope to limit the amount of third-party trial software on new PCs to improve boot time and reliability, OEMs and retailers often have profitable business deals based on the number of consumers who sign up for the full version of bundled trial products. Windows Gurus might come into conflict with in-store salespeople who recommend different products based on their commission structure, or who fear that Gurus might replace them.

Antitrust. Microsoft's 2002 consent decree with the U.S. Department of Justice (DoJ), which expires in Nov. 2009, restricts the company's ability to strike exclusionary deals with OEMs to bundle Microsoft products at the expense of third-party products. To avoid potential antitrust problems with the Windows campaign, the company has explicitly stated that the program is open to all OEMs and that Microsoft will not require OEMs to remove any third-party products in order to have their PCs featured in the campaign. However, that will limit Microsoft's ability to eliminate specific drivers, startup programs, or "nagware" trial applications that damage users' perceptions of Windows.

Products. While marketing has contributed to some of Apple's recent success, product quality can't be ignored. Microsoft has begun to address some of the widely reported problems with Windows Vista, and its work with OEMs could further reduce complaints. However, other Windows-branded products don't stack up so well. In particular, although Windows Mobile phones offer a wider variety of form factors and price points than Apple's iPhone, reviewers have criticized Windows Mobile as being harder to use. Marketing is not enough: product improvements are also necessary to boost the company's reputation among consumers.

Resources

Windows.com is Microsoft's online focal point of the new Windows campaign.

The advertising campaign that promoted Windows Vista and Windows Live was covered in "Putting the 'Windows' in Windows Live" on page 18 of the Jan. 2008 Update.